The Germans make fun of themselves sometimes, saying that they invented gunpowder and the Lord punished them for it with newspapers. But as they say, there is a fraction of a joke in every joke. The media sometimes really resembles Egyptian punishments. They performed this function on Friday. However, the victim was not Germany, but Great Britain. More specifically, a pound which is exactly at the time when the preliminary indexes of business activity in the United Kingdom were published, in a number of extremely influential and respected mass media and disinformation (sorry, sometimes you can not call them anything else) appeared information that the Bank of England may reduce the refinancing rate at the end of the next meeting. But only recently, investors exhaled and relaxed, since all forecasts have been revised, and this event is expected no earlier than mid-summer. In turn, shocked by this speed of rewriting forecasts, investors, with one hand holding on to a wildly beating heart, with the other relentlessly pressed the "SELL" key. There is no reason to expect such an early reduction in the Bank of England refinancing rate, although interest rate futures remain unchanged. Of course, we can assume that some media outlets and misinformation staged this performance for their own selfish purposes, but, as one American official said, certain people need to be tortured with a blowtorch to be able prove this.
Nevertheless, there was no reason to reduce the pound. Preliminary business activity indexes turned out to be much better than the most daring forecasts. In particular, the index of business activity in the service sector, instead of growing from 50.0 to 51.0, has grown to 52.9. At the same time, the production index, with a growth forecast of up to 48.9, increased from 47.5 to 49.8. As a result, from 49.3 to 52.4, the composite index of business activity increased, although they expected growth to 50.6. So, the decline in the pound looks simply irrational. But the funny thing is that this news flashed so fast that there was practically no trace of it by the end of the day. As they say - the moor has done his job, so the moor must leave.
Composite Business Activity Index (UK):
However, the single European currency had reasons to decline, precisely because of preliminary business activity indices, which came out slightly worse than expected. In particular, the index of business activity in the service sector fell from 52.8 to 52.2, although it was expected that it would remain unchanged. And largely because of this, the composite index of business activity, which should have grown from 50.9 to 51.2, has already remained low. The only thing that somehow brightened up the sad picture was the manufacturing index, which increased from 46.3 to 47.8. In fairness, it should be noted that they were already waiting for growth, but only to 46.8. Nevertheless, the data as a whole came out worse than forecasts, and somehow there was no growth, so the decline in the single European currency does not raise any questions.
Composite Business Activity Index (Europe):
The opening of the American session only strengthened the process of reducing both the pound and the single European currency. As you might guess, the reason for this is the preliminary indexes of business activity, which came out better than forecasts. More precisely, the index of business activity in the service sector, which grew from 52.8 not to 52.9, but to 53.2, was significantly better than forecasts. However, the manufacturing index was disappointing as it declined from 52.4 to 51.7, although it was forecasted to grow to 52.5. Nevertheless, the manufacturing index has a much lower weight than the index in the service sector, so that the composite index of business activity could grow from 52.7 to 53.1.
Composite Business Activity Index (United States):
In theory, we should see its growth today due to the unjustified decline in the pound on Friday. However, it is unlikely that we will wait. The number of approved mortgages in the UK may be reduced from 43.7 thousand to 42.5 thousand. Given the enormous importance of the real estate market for the investment attractiveness of the United Kingdom, a decrease in mortgage lending is a purely negative factor. After all, this means that demand for real estate is declining, which means there is no reason for price increases, including those properties that have already been purchased as an investment.
Mortgages Approved (UK):
American statistics will not also give a reason to weaken the dollar, as the situation in the United States is completely opposite from the UK. Sales of new homes are expected to increase by 0.8%, from 719 thousand to 725 thousand.
New Home Sales (United States):
Friday's decline in the single European currency was fully justified, as good US statistics will lead to its further decline. Thus, the single European currency will decline to the area of 1.1000 - 1.1025.
The pound will equalize imbalances due to obvious oversold and unjustification, which means that even weak macroeconomic data will only become the reason for its stability. Thus, the pound will remain in the range of 1.3025 - 1.3075.
